When I wrote my last article, Don't Buy Gold Now, Wait Until It's Under $1,000, it naturally received the type of attention I expected. I didn't have an obvious agenda to sell gold to those who read the article, so one can't accuse me of having a bias because I do sell gold for a living. So why would I write such an article?
This article will go into more detail on what I see coming for gold and help investors see what I see.
When I wrote that last article for Seeking Alpha, the price of gold opened the next trading session at $1,211 and spent the entire month of April below that figure. It took until the middle of April for gold to muster a run to $1,225 and today we are sitting at $1,186, just $28 from the looming November 5, 2015 low of $1,158.
I could write an article every day on gold like Kitco and other sites do, but you'll see that in the 6 years I have been writing for Seeking Alpha, I have only written 50 articles with this being my 51st. It is only traders who are concerned with the day to day moves of gold, but it is long term investors who would like to know when they should begin or add to their allocation to gold.
I do write my Current Thoughts 5 days a week for traders and investors. I take the data that I see, analyze it for what it is, and provide my take on how it may affect gold. In doing this analysis daily and having been in the financial services industry for 29 years now, it has helped me see all sides of the markets, the media interpretation/bias and ultimately I hope; the truth that is the market. If I can share what I see, and of course if I am right about what I see, then hopefully you can make good investment decisions from it.
As much as some may disagree, it has been the movement in the dollar that has helped me the most since my last article. We had a break down for a bit and gold rose and now this week a rise and gold broke down. Of course since 2011 when gold was at its high and the dollar at its low, we have had the perfect correlation with gold falling and the dollar rising as can be seen in the following charts.
I've been bullish on the dollar and many who read my articles know this. While the dollar has many faults, the world still trades in dollars and they are in demand as a safe haven. If you lived in Greece or even Germany, would you prefer to own Euro's or Dollars? How about Argentina? South Africa? Mexico? India? While these countries lower their prices to increase demand and GDP, the U.S. is stuck as the safe haven for liquid wealth and conservative investors. Of course it doesn't hurt if you have the world's strongest military. For now, the dollar is king and no, it's not going to crash soon.
Would I love for the dollar to crash and gold to rise and sell more gold? Hell ya! But I am a realist and I see more weakness in the currencies that make up the dollar; the Euro, Pound, Yen and Canadian dollar primarily, than I do in the U.S. dollar, even though the economic data and debt situation here in the U.S. may say otherwise.
Which brings us to why gold will break $1,158, the November 5th, 2014 low.
Why Gold Will Break $1,158
I have been thinking we might get our summer months rally, but some of my indicators aren't showing any weakness or the "fear" that my last article said was missing. It's getting harder to take that side of the story, especially when you have the stock market breaking to higher highs. We may see this break of $1,158 sooner than I wanted or expected.
If the Greece situation implodes, the dollar should shoot up over 100 quickly and this will put the pressure on gold that can take it to lower lows. We should know soon, by the end of the month, whether Greece will get its act together by the IMF deadline for payment June 5th. The rumor of this payment caused the stock markets to rally Wednesday, but please note that the dollar did not decline on this speculation.
Gold Falling Below $1,000
After gold does fall below the $1,158 mark, what will stop it from falling below the psychological $1,000 figure? My answer is nothing will stop it from breaking below $1,000. Market makers (the banks) would love to break the backs of gold bugs and this would be a great stop in accomplishing this rush out the door from the yellow metal safe haven. We have no fear that will stop it. We have a higher stock market and strong treasuries. We have the threat of (empty as it is) of higher interest rates. We have a stronger dollar. What more convincing do you need to see what I see, other than China may do this or that and the Russian's are buying more gold?
Relax Gold Bugs
I am a gold bug. I can convince anyone for the multiple reasons as to own gold as insurance. I mentioned several of them in my last article. But you can't discount what I have written above. Long term, all currencies lose their purchasing power to gold and yes, silver. The 1964 quarter could buy you a gallon of gas in 1964 and today it still can if exchanged for the scrip of the day (dollar and cents).
There will be fear again. The stock market will fall again. Banks will fail again. The Fed will fail again. Countries will fail again. The contagion from one or many incidents in the financial system will spread among the industry whether it is started in Europe, South America, Middle East, Africa or Asia. Gold will rise again. But one thing will be different in the beginning. I see the dollar and gold rising together for a time. I will be explaining this more in my forthcoming book, Illusions of Wealth.
Action Steps Today
If you haven't started investing in gold, I recommend buying physical metal at the lowest cost possible or for traders acquiring one of the various ETFs that sell gold like (GLD) or (PHYS) or (OUNZ). Gold is insurance first and foremost, but if you are a buyer today, I view it like buying the DOW at 8500 in 2009. Sure it went lower to 7500, but with the DOW sitting at over 18,000 today, neither buyer is complaining. This is what it will be like for owners of gold in the years ahead where like with the DOW today, your hardest decision will be; when to sell.
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Disclosure: The author is long PHYSICAL GOLD AND SILVER. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.